Insight Into New Business Reporting Model
Monday, September 15, 2008 at 06:20AM
Charlie in General Information

The AICPA Assurance Services Executive Committee has released a white paper titled The Shifting Paradigm in Business Reporting and Assurance.  This white paper can be found here and is worth reading.

The abstract of the paper explains the paper's purpose:

The purpose of this whitepaper is to highlight significant trends which give rise to emerging reporting and assurance opportunities and needs. This paper is published by the AICPA Assurance Services Executive Committee with the intent of helping to build awareness of these trends and opportunities and to lay out a plan that supports the continued importance and sustainability of the accounting  profession in a changing world. The subject matter outlined in this paper is of interest to AICPA members, including both members in public practice and business and industry, those in the accounting profession as a whole, and other participants in the business reporting process including producers and consumers of business information.

This paper focuses on how to provide assurance services (i.e. audit) business reports.  To understand what the assurance services have to look like, clearly what business reporting will look like needs to be understood.  So, there are insights here on what this new model of business reporting might look like.

When might this happen you ask?  Well, it is happening now:  A global shift to IFRS (International Financial Reporting Standards);  The use of XBRL rather than paper or "electronic paper" (i.e. HTML);  Calls for increased transparency.

There are two things worth thinking about which are not covered by this paper.  And I am not saying this paper should cover them, but they are important to think about as you read this paper.

The first missing aspect is specifics.  What specifically will this new business reporting model look like?  Now, no one can say for sure specifically what this new model might look like.  However, it is also not the case that there are not clues as to what it might look like.

The second missing aspect is sort of dependent on the first which is "which".  There are options.  Which new model will those who are creating this model choose to create?  How will they decide?  Are they qualified to pick from among the specific options available?  Who will make these choices?  Will they be the right choices?

For example, the paper points out that today assurance is issued on a set of financial statements taken as a whole.  But with XBRL, it is quite easy to take pieces of a financial statement and use them outside the context of the whole financial statement.  So, how will this be resolved?

Another notion not really discussed much in the white paper but it has been brought up by others such as the SEC is the idea that we are moving from "documents" to "databases".  What I mean is that the old EDGAR system is basically a big electronic filing cabinet for documents; but the new SEC IDEA system is supposed to be more like a big database.  So what, CPAs are going to issue assurance on databases of information?  Well, maybe.  "The data cube of XYZ Company is fairly stated...."  Who knows for sure.

One thing is for certain though:  things will change.  It will be interesting to see how much of the baggage of the paper-based system will be carried over into this new business reporting model.  Clearly there are some very good aspects of the paper based model.  There are some aspects of the paper based model which should not  be carried over, as they would hinder, as opposed to help, the new model. 

My question is how can we tell the difference between what should be carried forward and what should not and who will make those choices.



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